SMARTPHONES: India Comes to China, Huawei Eyes Global Crown

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Bottom line: Micromax’s plan to sell smartphones in China is likely to sputter due to intense competition, while Huawei stands a 50-60 percent chance of becoming one of the world’s top 2 smartphone brands by 2020.

India’s Micromax eyes China smartphone market

It seems the smartphone road connecting China and India isn’t just one-way, with word that leading Indian brand Micromax is planning to enter the intensely cut-throat Chinese market. Meantime, Chinese leader Huawei is looking beyond its home market and to the rest of the globe, with its brash smartphone chief declaring his target of passing Apple (Nasdaq: AAPL) and Samsung (Seoul: 005930) to take the world’s smartphone crown within 5 years.

Let’s begin with the Micromax reports, which look more interesting because of the uniqueness of the move. By comparison, boasts from Chinese smartphone brands like Huawei have become quite frequent and often hollow. We’ve heard similar aspirations from the likes of former superstars Xiaomi and Lenovo (HKEx: 992), only to see those companies stumble and struggle just to stay in the global top 10 in this fast-paced sector.

The latest reports cite Micromax founder Vikas Jane saying he plans to enter China next year, ahead of an IPO as soon as 2 years from now. (English article; Chinese article) It seems that Jane also isn’t shy about making predictions, and is saying he aims to make Micromax one of the world’s top 5 smartphone brands by 2020.

Micromax is India’s second largest smartphone brand after Samsung, but has seen its position at home come under steady assault from a flood of Chinese brands entering the market, led by names like Xiaomi, Huawei and Qihoo (NYSE: QIHU). The competition could get hotter still, following Apple’s disclosure a couple of weeks ago that it has big future plans for the India market, where its sales are still quite small. (previous post)

While many Chinese brands are discovering India, this would be the first time a major Indian name was going to China. That reflects the similarities between the 2 markets, which are both highly price sensitive and relatively sophisticated in terms of telecoms infrastructure. It also shows that competition in both markets is quite intense, as more than a dozen companies making cheap look-alike smartphones all vie for attention from consumers.

Frankly speaking, China is already an extremely competitive market and I wouldn’t give Micromax much chance of making any inroads there. Micromax could have gotten a lift in the market through a planned $1 billion investment in the company by Alibaba’s (NYSE: BABA) Ant Financial affiliate that was in discussions last year. But those talks later fell apart over different opinions about valuation and the company’s strategic direction.

Huawei’s Lofty Goals

From Micromax, let’s move to Huawei, whose talkative smartphone chief Richard Yu has just made the lofty forecast that his company can become the world’s biggest smartphone maker with over a quarter of the global market within 5 years. (English article; Chinese article) Like Jane, Yu also made his prediction at a technology conference taking place in Hong Kong.

Few would have believed such claims when Huawei first entered the global market more than a decade ago for its older, core networking equipment products, then dominated by names like Ericsson (NYSE: ERIC), Motorola and Alcatel. Fast forward to the present, when only Ericsson still exists in its earlier form, and Huawei is considered the global leader in the space by many.

I personally have a lot of respect for Yu, who worked in anonymity for years while Huawei was trying to establish itself as a serious smartphone brand. It finally achieved a breakthrough around a year ago, and is now the undisputed third largest brand worldwide.

Unlike many of the other Chinese brands, Huawei actually has quite a lot of experience in telecoms product development and is using that advantage to make high-quality, distinctive models that set it apart from many of its rivals. Despite that, there’s no denying that things can change quite quickly in the fast-moving market and Huawei could fall as quickly as it rose. Still, I would feel relatively comfortable giving it a 50-60 percent chance of success of becoming one of the top 2 global brands by its stated target date of 2020.

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